Here's a great article explaining free trade, and why it's beneficial for America. It was written in 1995, when NAFTA was such a controversy.
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Prior to ratification of the Constitution, states had their own development policies. Some, like Virginia, tried to stimulate their existing agricultural cash crops; others, like Connecticut, tried to stimulate industrial development at the expense of agriculture. Each state had its own paper currency which appreciated or depreciated against those of other states, increasing uncertainty and therefore inhibiting interstate trade. Large and unequal government debt existed from state to state. Some, like Rhode Island, inflated it away and suffered a boom-bust cycle; others, like Massachusetts, raised taxes to pay it, squelching economic activity and spawning open rebellion.
Delegates from the states sent to Constitutional Convention in 1787 put high priority on solving these problems of interstate trade. That's why the U.S. Constitution authorizes Congress “to coin money” and forbids the states from printing or coining money; it forbids the states from erecting trade barriers and authorizes Congress “to regulate commerce with foreign nations and among the several states.”
By allowing the market to broaden, the integration of state economies had immense benefits. A uniform money removed the inefficiency of bartering different monies and the uncertainty of currency fluctuations. Elimination of trade barriers allowed the division of labor to develop unimpeded, thereby greatly increasing productivity by an efficient allocation of factors of production.
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No one is denying that free trade doesnÂ’t have its benefits. The benefit of economic of scales dictates that a bigger market will result in more profits for any given product, it also dictates that only the most efficient and productive companies will survive.
Basically it says if you have a unique product that can be sold to the world you can make a fortune, but the odds of you having a unique product to sell to the world shrinks by the same proportion. The result is simple if you or your company or profession has a unique skill or product to sell then you will likely make a fortune, if not, then in a world economy the odds are that you, your profession, or company will like have to do with less.
The United States economy is largely the result of a large market (large population), with plenty of resource and citizen with a strong belief and education to succeed. European countries have also benefit greatly from educated workforces, and a history of trade amongst it neighbors. Japan has also a long history of success dating back before even World War II, but has been very successful with closer relationships with the West. Taiwan and Korea has also benefited from trading with the West and Japan.
With respect to the third world and the former socialist countries, most of which are currently either actively engaging in the global economy or soon will be, donÂ’t have the same history of economic success as the former countries mentioned above. China and India have had great success in the past decade, but still have a very low income per capital, and likely will stay this way for a few more decades. Most of the world is in the same boat, and the big question is how can one billion well to do world citizens raise the standard of living of five billion not so well off members.
NAFTA has failed to raise the standard of living in Mexico after being around 10 years, and some sources I have read say thing have actually gotten worse. It obvious that millions still flee to the United States even though weÂ’ve been sending jobs form the United States to Mexico for decades now. China is struggling with raising the value of its currency because many Southeast Asian counties have had mixed success in the world economy, initially benefit from foreign outsourcing, then seeing these same companies flee to a cheaper labor market the second their countries wages go up or another countries moves into the global market will to work for less.
The United States for the past five years has had a trade deficit between 400 to 600 billion dollars. The most optimist economist that I have read believes that any trade deficit above 200 billion dollars isnÂ’t sustainable. Which means that the US will have to either stop buying 200-400 billion dollars worth of foreign goods or somehow in the next few years the world need to buy that much goods from use.
Just a though, even if it is a long one.
